Having To Pay $40 Million In Tax On $100 Million In Income

A recent Molly Ivins column I referred you to knocked guys for trying to avoid tax on their $100 million stock option windfalls. What’s so wrong with having to pay $40 million in tax on a $100 million in income, it asked.

Answered Gennady S, with some heat: ‘The guy who made $100 million took a lot more chances than the guy who did not, and if his risks are not rewarded, capitalism would not work. Period.’

–> Yet I would argue that somehow capitalism worked in the 1950s, when the top federal income tax bracket was (a ridiculous) 90%. And worked rather well in the 60s and 70s when it was (a still ridiculous) 70%. And from 1980 through 1986 when it was 50%. (Still too high, in my view).

Lowering the top rate all the way to 28% in 1986 did not lead to any kind of boom in the Reagan/Bush years, only to an explosion of debt for future generations to service. Indeed, the economy was in a pretty bad rut by 1991-92.

Did notching the top rate back up to 39.6% in 1993 kill the economy? Did it shut off access to capital and discourage risk taking? Quite the contrary; over the next eight years we added 22 million new jobs, capital was plentiful, and risk takers were going wild.

The evidence would seem to suggest that taxing $100 million windfalls at 39.6% does not kill capitalism (or lottery ticket sales). Neither does taxing $100 million estates. Neither, even, does taxing dividends and capital gains.

We would all love to live in a world where, per Leona Helmsley, only the little people paid taxes. But our need for revenue is too great. For the foreseeable future, sadly, the super-rich will have to pay taxes, too. At least that is the Democratic view.